Japan just logged its largest trade deficit in two years following a surge in import prices

Japan logged its largest trade deficit in two years in January, snapping a run of five consecutive trade surpluses in the process.

According to Japan’s Ministry of Finance (MOF), the trade balance swung back to a deficit of 1.087 trillion yen, the largest since January 2015.

It was also far larger than the 636.8 billion yen deficit that had been expected by economists.

From a year earlier, the value of exports grew by 1.3%, below the 5.4% increase of December and 4.7% level that had been expected by economists.

The government said that exports growth slowed in January due to a decline in auto exports.

By region, exports to China, the nation’s largest trading partner, increased by 3.1 from a year earlier, below the 12.4% pace reported in December.

This was largely due to the timing of Chinese Lunar New Year holidays which began in late January.

Export to the United States fell 6.6% from a year earlier, largely due to weaker shipments of auto and electronic goods. In the year to January, the US dollar fell by over 6% against the Japanese yen, and perhaps explains the weak headline result.

On the other side of the ledger, the value of imports increased by 8.5%, above the 4.7% level expected and reversing a 2.6% drop in the year to December.

It marked the fastest year-on-year growth in imports since June 2014, helped by a low base effect following steep commodity price falls that occurred in previous years.

For instance, front month Brent crude futures have more than doubled from the lows struck in mid-January last year. That was also reflective of strength in many other commodity prices over the same period.

Market attention will now turn to the release of Japan’s flash manufacturing purchasing managers index (PMI) for February on Tuesday.